Many employers run background checks and credit reports on job applicants -- and even current workers. Once they have the information, it’s hard to know if they use it to decide to hire, promote, or fire you, unless they tell you.

Background checks can include information from:

  • social network websites
  • internet searches
  • workers’ comp
  • sex offender registries
  • military records
  • education records
  • past employers (including calling people who are not listed on your resume)
  • driving record
  • court records, including workers’ comp
  • criminal records
  • credit reports
  • military records
  • drug test histories

Sometimes, companies get background checks because they’re worried about being sued for “negligent hiring.” Checks are required for certain jobs and industries, like airport screeners, childcare workers, school and hospital employees, and security workers.

There are serious problems with background checks. Some companies do not check that the information is true. Mistakes in databases and court records are common. Often, employers still use the information when it's wrong. Even if the information is true, it usually doesn’t have to do with the job and is information workers should be able to keep private from their bosses.

Many bosses think that workers with low credit scores are unreliable because they're not handling their personal business or more likely to steal because they need the money. Of course, the other way to look at it is that a worker with bad credit will be a better worker because they really need their job.

Studies show that minority workers are more likely to have bad credit. If an employer is using credit checks when it's not relevant to the job, they may be discriminating against minority applicants. The Equal Employment Opportunity Commission (EEOC) often rules that credit checks that are not relevant to the job are not legal.

There are some protections for workers under the Fair Credit Reporting Act (FCRA), but they don’t really protect your personal information or how it is used. All employers that use outside people or companies to find out about workers have to follow the law. You have no protection if employers look for the information themselves instead of using an outside company. Most importantly, if you refuse to give permission for a credit check, it is not illegal to fire you or refuse to hire you.

When an employer uses an outside company to run checks, you have to sign a paper agreeing to the background check. For most workers, you don’t have much choice, since you’re trying to get a job. The notice has to be on a separate piece of paper.

Technically, a boss has to tell you that information from the credit report was at least part of the reason you weren't hired or promoted. The law doesn't give much protection because employers can make up a different reason for why they made the employment decision -- or, not give you a reason at all. If they don’t admit they used the credit report information, they don’t have to follow any of the rules.

If a boss admits he is using the information from your credit report to decide not to hire or promote you or to fire you, then he has to tell you before taking action, give you a copy of the report they used, and give you information on how to correct what's in your credit report (usually an FTC pamphlet). If there is bad information in your credit report, the employer does not have to give you time to correct it or consider your explanation before making a decision. You should try to fix any problem or show the employer proof of the error anyway.

After making the decision, if they admit they used the credit report against you, they have to give you:
  • the name, address, and phone number of the credit reporting agency
  • information on your right to get a free copy of your credit report within 60 days
  • information on your right to dispute incorrect information
  • an explanation that they, not the agency that made the report, made the decision against you

You can get a free copy of your credit report every year, to make sure that it's correct. (See "Checking Your Credit Report" page.)

The law: Fair Credit Reporting Act (FCRA) 15 U.S.C. § 1618 et seq.

                  Fair and Accurate Credit Transactions Act

Enforced by the Federal Trade Commission (FTC) or by filing a law suit.